[Federal Register: January 3, 1995 (Volume 60, Number 1)]
[Rules and Regulations ]
[Page 219-231]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[[Page 219]]
_______________________________________________________________________
Part III
Federal Reserve System
12 CFR Part 103
Department of the Treasury
31 CFR Part 103
_______________________________________________________________________
Recordkeeping for Funds Transfers and Transmittals of Funds by
Financial Institutions; Final Rules
[[Page 220]]
FEDERAL RESERVE SYSTEM
[Docket No. R-0807]
DEPARTMENT OF THE TREASURY
31 CFR Part 103
RIN 1505-AA37
Amendment to the Bank Secrecy Act Regulations Relating to
Recordkeeping for Funds Transfers and Transmittals of Funds by
Financial Institutions
AGENCY: Department of the Treasury; Board of Governors of the Federal
Reserve System.
ACTION: Final rule.
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SUMMARY: The Financial Crimes Enforcement Network (FinCEN) of the
Department of the Treasury (Treasury) and the Board of Governors of the
Federal Reserve System (Board) jointly have adopted a final rule that
requires enhanced recordkeeping related to certain wire transfers
(which include funds transfers and transmittals of funds) by financial
institutions. The final rule takes into consideration the public
comments received on the notice of proposed rulemaking. Each domestic
financial institution involved in a wire transfer must collect and
retain certain information, depending upon the type of financial
institution, its role in the particular wire transfer, the amount of
the wire transfer, and the relationship of the parties to the
transaction with the financial institution.
EFFECTIVE DATE: January 1, 1996.
FOR FURTHER INFORMATION CONTACT: Treasury: A. Carlos Correa, Assistant
Director, Rules and Regulations Section, (202) 622-0400; or Roger
Weiner, Deputy Director, (202) 622-0400; or Peter Djinis, Director,
(202) 622-0400, Office of Financial Enforcement; Stephen R. Kroll,
Legal Counsel, (703) 905-3534; or Nina A. Nichols, Attorney-Advisor,
(703) 905-3598, FinCEN.
Board: Louise L. Roseman, Associate Director, (202) 452-2789; Gayle
Brett, Manager, Fedwire, (202) 452-2934; or Darrell Mak, Financial
Services Analyst, (202) 452-3223, Division of Reserve Bank Operations
and Payment Systems; Oliver Ireland, Associate General Counsel, (202)
452-3625; or Elaine Boutilier, Senior Counsel, (202) 452-2418, Legal
Division, Board of Governors of the Federal Reserve System. For the
hearing impaired only, Telecommunication Device for the Deaf (TDD),
Dorothea Thompson (202) 452-3544.
SUPPLEMENTARY INFORMATION: The statute generally referred to as the
Bank Secrecy Act (Pub. L. 91-508, codified at 12 U.S.C. 1829b and 1951-
1959, and 31 U.S.C. 5311-5329) authorizes the Secretary of the Treasury
to require financial institutions to keep records and file reports that
the Secretary determines have a high degree of usefulness in criminal,
tax, or regulatory investigations or proceedings. The authority of the
Secretary to administer the Bank Secrecy Act has been delegated to the
Director of FinCEN. The Bank Secrecy Act was amended by the Annunzio-
Wylie Anti-Money Laundering Act of 1992 (Pub. L. 102-550), which
authorizes the Treasury and the Board to prescribe regulations to
require maintenance of records regarding domestic and international
funds transfers. The Treasury and the Board are required to promulgate
jointly, after consultation with state banking supervisors,
recordkeeping and reporting requirements for international wire
transfers by depository institutions and certain nonbank financial
institutions. In issuing this final rule, the Treasury and the Board
have considered its usefulness in criminal, tax, or regulatory
investigations or proceedings and its effect on the cost and efficiency
of the payments system. The Treasury and the Board are authorized to
promulgate regulations for domestic transfers by depository
institutions. The Treasury, but not the Board, is authorized to
promulgate recordkeeping and reporting requirements for domestic wire
transfers by nonbank financial institutions.
In August 1993, the Treasury and the Board jointly issued for
public comment a proposal to enhance the recordkeeping requirements
relating to certain wire transfers by financial institutions (58 FR
46014, August 31, 1993). The proposal was distributed to state banking
supervisors. Comments were requested on all aspects of the proposal,
including the usefulness of the records covered by the proposed rule
for law enforcement purposes and the effects the proposal might have on
the cost and efficiency of the payments system.
At the same time, the Treasury issued a companion Notice of
Proposed Rulemaking, which would require financial institutions to
include in transmittal orders certain information that must be retained
under this rule (58 FR 46021, August 31, 1993). While many commenters
responded to both proposals via the same correspondence, comments
related to the companion proposal are not included in this summary.
The following table identifies the number of commenters by type of
organization:
Commercial banking organizations............................... 48
Trade associations............................................. 20
Credit unions.................................................. 12
Broker/dealers................................................. 4
Federal Reserve Banks.......................................... 4
Regulatory agencies............................................ 5
Money transmitting providers................................... 4
Savings institutions........................................... 2
Clearing house associations.................................... 2
Others......................................................... 7
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Total public comments...................................... 108
A. Overview
The proposed rule would require each domestic financial institution
(as defined in the Bank Secrecy Act regulations) involved in a wire
transfer to collect and retain certain information for five years. The
amount and type of information would depend upon the type of financial
institution, its role in the particular wire transfer, and the
relationship of the parties to the transaction with the financial
institution.
Many commenters expressed general support for the rule and its
objective to combat money laundering. A few commenters, primarily
smaller financial institutions with low wire transfer volume, indicated
that they were already complying with the requirements. The Department
of the Justice, the Internal Revenue Service, and the Office of the
Chief Postal Inspector supported the proposal, commenting that the
availability of greater user information will be a tremendous asset to
law enforcement's ability to counteract money laundering activities.
These law enforcement agencies suggested that the regulation be
strengthened further to assist them in identifying illegal activity.
Broker/dealer commenters also expressed general support for the
proposed rule. One broker/dealer commented that the proposed regulation
was a reasonable and highly effective response to law enforcement
needs. Another broker/dealer commented that the rule generally would
not be burdensome to its operations.
Some commenters, however, expressed doubts that the proposed rule
would deter money laundering. A small number of commenters objected to
the proposal altogether, indicating that the rule was overly
burdensome, while additional commenters doubted that the benefits of
the rule would outweigh the costs. Two commenters believed that law
enforcement agencies already were being inundated with enough anti-
money laundering information, such as currency transaction reports, and
they did not believe the additional information required by the rule
would provide sufficient benefit to warrant [[Page 221]] collection. A
few commenters suggested that money launderers simply would find
alternative methods to circumvent the recordkeeping requirements,
diluting the rule's effectiveness.
Three of the four nonbank providers of money transmitting services
that commented strongly opposed the proposed requirements. One
commenter stated that the Treasury and the Board must consider the
fundamentally different nature of nonbank financial institution
operations before adopting a final rule. These commenters indicated
that the burden on nonbank financial institutions would clearly and
substantially outweigh the reasonably anticipated benefit to law
enforcement.
Other commenters indicated that it was difficult to assess the
burden of the proposal because certain requirements, such as
retrievability, were not clearly defined. Many commenters suggested
that more types of transactions be exempted from the rule.
Based on the comments received, the Treasury and the Board have
modified the proposed rule to reduce the burden associated with the
rule, while maintaining the usefulness of the rule to law enforcement
agencies. The final rule exempts wire transfers below $3,000, thereby
reducing the burden of collecting, maintaining, and retrieving wire
transfer records. This exemption should particularly benefit nonbank
providers of money transmitting services, which typically handle
smaller-value transfers. Other modifications to the rule limit
instances where verification is required. In addition, the final rule
clarifies the verification and retrievability requirements. As a result
of these changes, the Treasury and the Board believe that the benefit
of having the information available to law enforcement agencies
outweighs the burden associated with the final rule. Although the final
rule cannot prevent money launderers from using wire transfers for
illegal purposes, the Treasury and the Board believe that the rule will
help trace the proceeds of illegal activity and identify the
participants in money laundering schemes.
The Treasury and the Board will monitor experience under this final
rule to assess its usefulness to law enforcement and its effect on the
cost and efficiency on the payments system. Within 36 months of the
effective date, the Treasury and the Board will review the
effectiveness of this final rule and will consider making any
appropriate modifications.
B. Section-by-Section Analysis
Section 103.11 Meaning of Terms
The proposed rule added new definitions to the existing definitions
in the Treasury rules. A number of these new definitions applicable to
banks were identical to the terms used in Uniform Commercial Code
Article 4A (UCC 4A) (e.g., originator, originator's bank, payment
order, and others). In addition, the proposed rule added a number of
new definitions applicable to transactions by nonbank financial
institutions. These definitions were intended to parallel the
equivalent definitions in UCC 4A (e.g., transmittor, transmittor's
financial institution, transmittal order, and others). In order to
preserve as much uniformity as possible, some changes have been made to
certain proposed definitions to conform them more closely to the UCC 4A
definitions. Several definitions (e.g. accept, execution date, payment
date) are defined so as to make their usage also appropriate for
transactions involving nonbank financial institutions; otherwise, they
are similar, but not always equivalent in practice, to the UCC 4A
definitions. For example, under the final rule's definition of accept,
when a beneficiary's bank receives a transmittal order for a recipient
that is the customer of a nonbank financial institution holding an
account at the beneficiary's bank, the beneficiary's bank would accept
the transmittal order by executing a corresponding transmittal order to
the nonbank financial institution, rather than by crediting the account
of the nonbank financial institution, which would constitute acceptance
under UCC 4A. The definition of intermediary financial institution was
revised to include an intermediary bank. The definitions of
transmittor, transmittor's financial institution, recipient, and
recipient's financial institution also were revised to clarify the
scope of these definitions for transmittals of funds involving both a
bank and nonbank financial institution.
The Official Comment to UCC 4A is helpful in understanding many of
the definitions adopted in the final rule. Terms used in this rule that
are not defined have the meaning given them in the UCC, unless
otherwise indicated.
One bank asked whether the term payment order includes drawdowns.
Under the UCC 4A-104 Official Comment, this determination depends
generally on whether the drawdown is a credit transfer.1
\1\ Under the Official Comment, a drawdown transfer is a funds
transfer if the person transferring the funds either instructs Bank
A to transfer funds from its account at Bank A to its account at
Bank B or if Bank A has an agreement with the person whereby Bank A
is authorized to follow instructions of Bank B, as agent of the
person, to transfer funds from the person's account at Bank A to
Bank B. In both instances, the transfer is a credit transfer because
the instruction goes from the person (although in one case via Bank
B as agent) to Bank A to send the funds to Bank B. A funds transfer
under UCC 4A must be a credit transfer. If there is no agreement
between the person and Bank A that Bank B act as agent for the
person, then a request or instruction from Bank B to Bank A to
transfer funds from the person's account at Bank A to Bank B would
be a debit transfer and would not be a funds transfer under UCC 4A
or the final regulation.
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Another commenter asked whether a payment order includes a
transaction where Bank A instructs its correspondent, Bank B, to debit
Bank A's account with Bank B and pay a beneficiary that holds an
account with Bank B. This instruction meets the definition of payment
order in Sec. 103.11(y) and under UCC 4A-103. In this funds transfer,
Bank B is the beneficiary's bank and Bank A is either an intermediary
bank or an originator's bank, depending on the circumstances, and must
keep the appropriate records of the payment order.
Another commenter described a situation where a depositor orders
his account closed by telephone and instructs the bank to remit the
balance with a cashier's check mailed to the depositor; the commenter
asked whether this transaction is a funds transfer under the
regulation. This transaction is not a funds transfer because it is not
a series of transactions under UCC 4A-104(a); rather, it is one
transaction, a withdrawal of funds from the bank by a cashier's check.
Several credit union commenters objected to the inclusion of credit
unions in the definition of bank and stated that credit unions should
be considered nonbank financial institutions. The longstanding
definition of bank in the Treasury's existing Bank Secrecy Act
regulations (31 CFR 103.11(b))2 includes credit unions. The
definition of bank has not been changed in the final rule.
\2\The citation for the definition of bank will become 31 CFR
103.11(c) when this rule becomes effective.
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Several commenters requested clarification of the meaning of the
terms originator and beneficiary. In particular, these commenters asked
who the originator and beneficiary would be in instances where either a
corporation or a bank's trust department sends or receives a funds
transfer. When an employee sends a payment order to the originator's
bank as agent for a corporation, the corporation, and not the employee,
is the originator. When a [[Page 222]] bank's trust department makes a
funds transfer as trustee for one or more trust accounts, the bank is
the originator. If, however, the bank's trust department makes the
funds transfer on the specific instructions of a trust account holder,
then the account holder is the originator because it is the sender of
the first payment order to the bank. In both cases, the bank is the
originator's bank.
Two commenters requested that a definition be added for the term
executing, which is used in the definition of the term accept. Both
commenters suggested adoption of the UCC 4A-301 definition of executed.
Certain definitions from UCC 4A are included in the regulation for
reference. Other terms, such as execute, that are not defined
specifically in the regulation, but are defined in relevant provisions
of the UCC, will have the meaning given them in the UCC, unless
otherwise indicated.
One commenter requested that the term domestic bank be defined. The
terms domestic and bank are defined in Sec. 103.11. Under these
definitions, a domestic bank is one that is located within the United
States and would include branches and agencies of foreign banks located
and conducting business within the United States.3 A domestic
financial institution is one that is located in the United States. No
separate definition of domestic bank has been added to the regulation.
\3\31 CFR Sec. 103.11(s), which will become 31 CFR
Sec. 103.11(nn) when this rule becomes effective, defines United
States to include the States of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, the United States Virgin
Islands, Guam, the Commonwealth of the Northern Mariana Islands,
American Samoa, the Trust Territory of the Pacific Islands, and the
territories and possessions of the United States.
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As proposed in Sec. 103.33(f), nonbank financial institutions must
collect, verify and retain a record of the originator's identity,
because these institutions likely would send or receive transmittals of
funds for persons with no account relationship, and therefore, no
existing records. Many commenters, both banks and nonbank financial
institutions, noted that there are several types of ongoing customer
relationships, other than those persons that have a deposit account or
loan with a bank, or have an account with a financial institution that
is a broker or dealer in securities, that would result in the financial
institution having the desired information about the customer in its
customer record files. By acknowledging these relationships, the
requirements to verify information on noncustomers could be minimized.
The final rule limits the verification requirements to originators/
transmittors and beneficiaries/recipients that are not established
customers. An established customer is defined as a person with an
account with a financial institution or a person with respect to which
the financial institution has obtained and maintains on file the name
and address, as well as the customer's taxpayer identification number
or, if none, alien identification number or passport number and country
of issuance, and to which the financial institution provides financial
services relying on that information. Such relationships with banks may
include, but are not limited to, deposit accounts, loan agreements,
trust accounts, custody accounts, and mutual fund accounts. Such
relationships with nonbank financial institutions may include, but are
not limited to, accounts with broker/dealers and ongoing contractual
relationships between providers of money transmitting services and
business customers.
Two commenters requested that a definition of copy be included in
the rule to clarify that new electronic technology, such as optical
disk storage, is allowed. The rule has been modified to explicitly
allow retention of an electronic record, which would include electronic
data storage methods.
Two commenters requested that all automated teller machine (ATM)
and point-of-sale (POS) transactions be exempted from the rule. One
bank noted that ATMs are used increasingly for legitimate business
transactions that are not governed by the Electronic Fund Transfer Act.
Unless a financial institution could exclude all ATM transactions from
the recordkeeping requirements, it would be necessary for the
institution to develop new systems and procedures to ensure compliance.
The final rule excludes from the definitions of funds transfer and
transmittal of funds all transfers governed by the Electronic Fund
Transfer Act, as well as any other funds transfers that are made
through an automated clearinghouse, ATM, or POS system. The question of
the treatment, under the Bank Secrecy Act, of transfers governed by the
Electronic Fund Transfer Act will be studied by the Treasury.
Section 103.33. Records to be made and retained by financial
institutions.
The proposed recordkeeping requirements varied depending on the
type of financial institution, its role in the particular funds
transfer, and the relationship of the parties to the transaction with
the financial institution. As proposed, the rule was structured into
three separate sections to apply to banks, nonbank financial
institutions, and broker/dealers. The proposed rule assumed that
nonbank financial institutions other than broker/dealers would not have
customers with account relationships and thus required these
institutions to verify and retain a record of the identity of all their
customers. Many commenters, however, indicated that nonbank financial
institutions do have established customers for which identification
information is maintained on file; thus, there is no need to reverify
the information. The final rule recognizes that many nonbank financial
institutions have established customers; therefore, the recordkeeping
requirements for nonbank financial institutions and broker/dealers,
contained in proposed sections (f) and (g), have been combined in the
final rule.
The requirements imposed by Sec. 103.33(e) for banks and
Sec. 103.33(f) for nonbank financial institutions in the final rule are
similar. The section-by-section analysis in this notice, which uses the
terminology associated with funds transfers through banks, also is
applicable to transmittals of funds through nonbank financial
institutions, except where specifically noted.
Section 103.33(e)(1) and Section 103.33(f)(1).
Recordkeeping Requirements--The proposed rule required that
originator's banks retain, for each payment order accepted, the
originator's name and address, the amount, date, payment instructions
received with the payment order, beneficiary bank identification, and,
if received with the payment order, the beneficiary's name and address
or the beneficiary's account number. Intermediary banks and
beneficiary's banks would be required to retain a copy of each payment
order they accept.
Dollar Threshold--Many commenters recommended that a threshold be
established to exclude funds transfers under a certain dollar amount
from the requirements. Commenters noted that a dollar threshold would
greatly reduce the burden of complying with the regulation by
decreasing the number of records retained, thereby minimizing the
storage and retrievability burden, and by decreasing the number of
funds transfers where identification must be verified. Many commenters
recommended a $10,000 threshold, which is the threshold for Currency
Transaction Reports. The next most-frequently suggested threshold was
$3,000, which is the threshold for [[Page 223]] recording purchases
with currency of certain monetary instruments, such as bank drafts and
cashier's checks. A few commenters recommended a $1,000 threshold. One
bank noted that a small-dollar exemption would particularly benefit its
noncustomer beneficiaries, who typically are tourists whose wallets and
identification documents have been either lost or stolen, and who
arrange to have a few hundred dollars wired to them from relatives or
friends.
One nonbank provider of money transmitting services, noting that a
small-dollar threshold would reduce the burden and cost to comply with
the regulation, estimates that 99.96 percent of its transactions are
for amounts below $10,000, while 98.0 percent of its transactions are
for less than $3,000, and 95.0 percent are for less than $1,000. The
Federal Reserve Banks recently conducted a one-day survey of Fedwire
funds transfers and found that 22 percent of transactions for that
sample day were for amounts less than $3,000, while 36 percent of the
transactions were for amounts less than $10,000.
To reduce the burden of the proposal, the final rule does not apply
to funds transfers of less than $3,000. This exemption will reduce the
burden of retaining records for small-dollar transactions and of
verifying the identity of noncustomer originators and beneficiaries,
reducing the costs to comply with the final rule.
The Department of Justice commented that no threshold, or a
threshold lower than $3,000, should be imposed. It believes that a
dollar threshold would provide persons wishing to circumvent the rule
the opportunity to do so by sending multiple small-dollar funds
transfers. The Treasury and the Board believe that it is desirable to
have a logical relationship between the threshold for the funds
transfer recordkeeping requirements and the other thresholds
established in the Bank Secrecy Act regulations. In situations where a
person sends multiple small-dollar funds transfers to avoid the rule,
it is expected that the bank would notify law enforcement
appropriately.
The Treasury intends to issue for comment proposed regulations that
would require banks to establish anti-money laundering measures,
including reporting of suspicious transactions and ``know your
customer'' policies and programs. In light of these anticipated
amendments to the Bank Secrecy Act regulations, the Treasury and the
Board believe that a $3,000 threshold will not hinder the usefulness of
the rule to law enforcement. The Treasury and the Board will monitor
the experience of the industry and law enforcement with the $3,000
threshold, and will consider modifying this threshold in the future if
it is determined that transactions are being structured in order to
evade the recordkeeping requirements. As part of its analysis of the
continued appropriateness of this final rule, the Treasury also will
monitor the effectiveness of banks' ``know your customer'' and
suspicious transaction reporting programs as applied to funds
transfers, once these rules take effect.
Beneficiary Information--The Department of Justice, Office of Chief
Postal Inspector, and Internal Revenue Service expressed concern that
the proposed rule did not require beneficiary information to be
collected and retained by the originator's bank if the information is
not received with the payment order. They indicated that the absence of
beneficiary information at this stage of the funds transfer process
would limit significantly the utility of the funds transfer records to
law enforcement.
In virtually all cases, the originator provides, as part of the
payment order it sends to the originator's bank, the identity of the
beneficiary. Typically, the originator provides the beneficiary's name
and address, or the beneficiary's account number, or some other
specific identifier of the beneficiary. Examples of a specific
identifier include the beneficiary's Clearing House Interbank Payments
System (CHIPS) universal identifier, its Dun and Bradstreet D-U-N-S
identifier, its stock exchange identifier, or, in some instances where
the beneficiary's address is not known, the beneficiary's name. The
originator provides this information with the payment order to ensure
that the beneficiary receives the proceeds of the funds transfer on a
timely basis. Given that the identification of the beneficiary may be
provided by means other than name and address or account number, the
Treasury and the Board have modified the proposed recordkeeping
requirement to allow for identification by other specific identifier of
the beneficiary.
Although some identification of the beneficiary is included in
virtually all payment orders, the Treasury and the Board have retained
the requirement that the originator's bank retain such items of
identification of the beneficiary as are received with the payment
order. In cases where the originator provides the payment order to the
originator's bank through an electronic connection, the originator's
bank generally cannot ensure that the originator has provided, as part
of its payment order, the beneficiary information specified in the
rule. In these situations, the originator's bank generally does not
manually review the payment order prior to execution of the order. The
originator's bank is encouraged not only to require its customers to
provide beneficiary information but also to perform an edit to ensure
that information is contained in the beneficiary's field. It cannot
determine in an automated manner, however, whether the information
contained provides a meaningful identification of the beneficiary. In
addition, there may be limited cases (e.g., transfers in response to
drawdown requests) where the originator may not provide beneficiary
information as part of its payment order to the originator's bank.
The Treasury and the Board believe that some originator's banks
would have to make substantial operating changes to ensure compliance
with the rule if they were required to collect and retain information
on the beneficiary for all payment orders they accept. Moreover, the
Treasury and the Board believe that requiring originator's banks to
retain beneficiary information as is received with the payment order
will not unduly impede law enforcement efforts. Beneficiary information
generally will be provided by the originator with the payment order and
therefore retained by the originator's bank. In those very few cases
where this information is not provided by the originator, it generally
can be obtained from the records of the beneficiary bank.
The final rule requires that the originator's bank retain as many
of the means of identification of the beneficiary (e.g., name and
address, account number, other specific identifier) as are received
with the payment order. Originator's banks are encouraged to request
that originators provide complete beneficiary information when
possible.4 The Treasury and the Board understand that some banks,
particularly those that send payment orders electronically, may rely on
the records of the payment orders they execute, supplemented by the
originator name and address information in their customer information
file, to meet the recordkeeping requirements of this rule for
established customers. Because the current Fedwire funds transfer
format may not have sufficient space to include all means provided by
the originator of [[Page 224]] identifying the beneficiary, the final
rule provides an exception to the requirement that the bank retain as
many means of identifying the beneficiary as provided by the
originator, until completion of the bank's conversion to the expanded
Fedwire format. For nonbank financial institutions, this temporary
exception is limited to domestic brokers and dealers in securities,
because the Treasury and the Board believe that only this category of
nonbank financial institution is likely to send electronically
transmittals of funds that ultimately are effected through Fedwire.
(See elsewhere in today's Federal Register for the Board's notice of
its adoption of an expanded Fedwire funds transfer format.)
\4\The Federal Financial Institutions Examination Council
adopted a policy encouraging all financial institutions to include,
to the extent practical, the name, address, and account number of
the originator and beneficiary in the payment order text, including
payment orders sent through Fedwire, CHIPS, and S.W.I.F.T.
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As noted earlier, the Treasury and the Board will monitor
experience of law enforcement and the industry under this rule. If the
Treasury and the Board determine that law enforcement efforts are
hindered materially due to lack of beneficiary information in the
records retained under this rule, the Treasury and the Board will
consider mandating that beneficiary information be retained for all
payment orders. In addition, the suspicious transaction reporting and
anti-money laundering policy and program rules due to be issued for
comment by the Treasury in 1995 should reduce materially any wrongdoing
stemming from the fact that an originator's bank is not explicitly
required by this rule to obtain beneficiary information.
Other Questions--Another commenter asked whether the payment amount
to be retained in a bank's records under this rule must be denominated
in U.S. dollars or whether it could be denominated in a foreign
currency. The payment amount retained under the rule should be the
amount as denominated in the payment order. The recordkeeping rule
applies to transfers in foreign denominations above the equivalent of
$3,000. Banks should determine the U.S. dollar equivalent of the
transfer based on the spot exchange rate at the time of the transfer to
determine whether a foreign-denominated transfer exceeds the $3,000
threshold.
One commenter requested an explanation of payment instructions that
are required to be retained by the originator's bank. This commenter
questioned whether payment instructions included instructions received
orally (in person or over the telephone), or by letter, facsimile, or
electronic terminal. Any payment instructions given by the originator,
either oral or written, must be retained if received with the payment
order. The originator's bank may retain either written documentation or
an audio recording of the originator's oral instructions. Such payment
instructions may include the purpose of the funds transfer, directions
to the beneficiary's bank regarding how to notify the beneficiary of
the receipt of funds (e.g., advise by phone), or other information.
Section 103.33(e)(2), (e)(3), and (e)(5) and Section 103.33(f)(2),
(f)(3), and (f)(5)
Additional Requirements for Persons Other Than Established
Customers--The proposed rule required banks to verify the name and
address of the originator, if the originator does not have a deposit or
loan account, and to retain a record of the verified information, the
type of identification reviewed, the number of the identification
document (e.g., driver's license), as well as a record of the
originator's social security number, alien identification number, or
employer identification number. Some commenters, primarily nonbank
financial institutions acting for non-account holders, argued that the
proposed verification requirement would be very burdensome to their
operations. Many commenters expressed concern with the requirement to
verify the name and address, and to record the identification number of
an originator or beneficiary that is not an account holder. A few
commenters noted that they may be forced to refrain from doing business
with non-account holders, due to the burden of the rule's verification
requirements. A few commenters asked whether the verification
requirement relates to the person placing the order or the originator.
By limiting the verification requirement to originators and
beneficiaries that are not established customers and by excluding funds
transfers under $3,000 from the rule, the number of instances where
verification is required has been reduced substantially, with a
commensurate reduction in compliance burden. The final rule requires
that if a payment order is from an originator other than an established
customer and is made in person, the originator's bank shall verify the
identity of the person placing the payment order. If the person does
not identify another party on whose behalf the funds transfer is being
made, then the person is considered the originator.
If it accepts the payment order, the originator's bank shall obtain
and retain a record of the person's name and address, the type of
identification reviewed, the number of the identification document
(e.g., driver's license), as well as the taxpayer identification number
or, if none, alien identification number or passport number and country
of issuance. If the originator's bank knows that the person placing the
payment order is not the originator, it shall obtain and retain a
record of the originator's taxpayer identification number or, if none,
alien identification number or passport number and country of issuance,
if known by the person placing the order. In cases where an agent or
representative of the originator places the payment order and does not
know the originator's identification number or in cases where the
originator or the person placing the payment order does not have such a
number, the originator's bank must note in the record the lack thereof.
Two commenters questioned whether the rule requires an originator's
bank to obtain and verify the originator's identity if the originator's
payment order is made via phone, fax, electronic link, or mail. In
situations where the originator is not present to provide the required
information, there is no opportunity to verify it. Under the final
rule, if the payment order is not made in person, the originator's bank
is not required to verify the identity of the person or to retain
information pertaining to an identification document used for
verification, but is required to retain a copy or record of the method
of payment (e.g., check or credit card transaction) for the funds
transfer.
For payment of the proceeds of a funds transfer in person by a
beneficiary's bank to a beneficiary that does not have a deposit or
loan account, the proposal required that a beneficiary's bank obtain
and retain a record of the beneficiary's name and address, and social
security number, alien identification number, or employer
identification number, or note in the record the lack of such number.
Several commenters, however, noted that if the proceeds of a funds
transfer are mailed to the beneficiary, there is no opportunity to
obtain the beneficiary's identification number.
In the final rule, if the proceeds are delivered in person to a
beneficiary other than an established customer or its representative or
agent, the beneficiary's bank shall verify the identity of the person
receiving the proceeds and shall obtain and retain information similar
to that required to be retained by originator's banks for originators
that are not established customers. If the proceeds are delivered to
the beneficiary other than in person, the final rule requires the
beneficiary's bank to retain a copy of the check or other instrument
[[Page 225]] used to effect payment, or the information contained
thereon, as well as the name and address of the person to which it was
sent.
The proposed rule required that an originator's bank verify the
name and address of originators and beneficiaries that are not account
holders by examination of a document that contained such information. A
few commenters questioned whether they had a duty to determine the
authenticity of the identification document provided by the person and
used for verification. One commenter questioned what constituted
adequate verification. Another commenter questioned what it should do
if a non-account holder provides identification that appears to be
falsified. Several commenters recommended that passports be allowed as
acceptable identification, even though they do not include addresses.
The final rule has been clarified to require that the identity of
an originator or beneficiary that is not an established customer be
verified by examination of a document, preferably one that contains the
person's name, address, and photograph. For aliens and nonresidents,
the final rule has been amended to allow banks to rely on a passport or
other official document evidencing nationality or residence. Banks
should exercise care in accordance with applicable law and regulations
to ensure that the identification presented is not falsified.
Section 103.33(e)(4) and Section 103.33(f)(4)
Retrievability Requirements--The proposal stated that banks must be
able to access funds transfer records readily by name or account number
of the originator or beneficiary, as the case may be, and may do so
through reference to some other record maintained by the bank. Many
commenters requested clarification of the term ``readily retrievable''
and asked how much time would be allowed to provide funds transfer
records.
The Treasury and the Board acknowledge that the term ``readily'' is
ambiguous and have eliminated it from the regulation. The existing
standards set forth in 31 CFR 103.38(d) will be used to assess whether
a bank has complied with the rule with respect to reporting records of
funds transfers in response to a request by a law enforcement agency.
Under this standard, the expected timeliness of retrievability will
vary by request. Generally, records should be accessible within a
reasonable period of time, considering the quantity of records
requested, the nature and age of the record, the amount and type of
information provided by the law enforcement agency making the request,
as well as the particular bank's volume and capacity to retrieve the
records. Usually, law enforcement agents will provide the approximate
transaction dates of the funds transfer records requested. In some
situations, law enforcement agencies may prefer to receive the
requested information as it becomes available, rather than wait until
the entire search is completed. Law enforcement agencies should provide
banks with the agencies' desired method of providing the information.
The final rule does not require that funds transfer records be
retained at the location where the payment order is accepted or at
another particular location of the bank subject to the recordkeeping
requirements. Funds transfer records may be retained, for example, at
the bank's processing location for funds transfers. A bank should
ensure that its funds transfer records are retained at a location that
enables them to be accessible within a reasonable period of time.
Several commenters questioned whether the retrievability standard
would apply to funds transfers executed prior to the rule's effective
date. The retrievability standard would apply only to funds transfers
made on or after the effective date. The Treasury and the Board note,
however, that establishing a specific retrievability standard under
this rule does not preclude banks' responsibilities to comply with a
properly executed subpoena or search warrant, regardless of whether the
transfer was executed before or after the effective date of the rule.
Banks must provide information with respect to funds transfers made
before the final rule's effective date in accordance with the Right to
Financial Privacy Act (12 USC 3401, et seq.) and the Electronic
Communications Privacy Act (18 USC 2701, et seq.).
Many commenters believed that the proposed rule would require an
automated retrieval system to comply with the retrievability
requirement. Although an automated retrieval system is not required by
the rule, a bank may wish to consider implementing an automated system,
depending on the demand for funds transfer records and its current
means of keeping the records (several commenters indicated that funds
transfer records are sorted by date and, in some cases, by bank
branch). Based on the volume of law enforcement requests, a bank should
weigh the costs of implementing an automated system versus the costs of
searching manual records.
A bank may access funds transfer records through reference to some
other existing record. If a law enforcement agency provides an account
number, the bank could reference its statement file for that account
number to determine funds transfer transaction reference numbers and
dates. Using this information, the bank could then retrieve the funds
transfer records by either manual or automated retrieval. If a law
enforcement agency provided a bank with a customer name, the bank could
reference its customer information file to determine the customer's
account number prior to accessing its statement file.
Some commenters indicated that they should be allowed to choose
whether their records would be retrievable by name, account number, or
both. These commenters requested that the regulation be clarified to
state that the bank has the flexibility to establish the specific
retrievability method. As noted, banks have the flexibility to maintain
their funds transfer records to be retrievable by name, account number,
reference number, or other data element, so long as they have the
capability to retrieve the transfer records if the law enforcement
agency does not provide that particular data element in its request.
Despite the establishment of a retrievability standard under the rule,
banks still would be obligated to comply with any properly executed
subpoena or search warrant. Because law enforcement agencies may have
access to only one identifier (e.g., name or account number) during the
course of an investigation, banks are likely to receive requests
containing either piece of information, regardless of how the bank has
chosen to maintain its records. Thus, no changes have been made to the
final rule to allow banks to specify the method of retrievability.
A few commenters noted that account numbers tend to change due to
mergers and questioned whether they would be required to retrieve
information based on the old or new account number. Commenters also
said that they retain, as part of their funds transfer records, the
account number at the time of the transaction, which may not be the
current account number. The funds transfer records should be
retrievable using the account number at the time of the transaction, as
it is likely that law enforcement agency requests may come from tracing
a transfer containing that account number. In situations where an
established customer's address has changed, the institution may provide
either the customer's current address or [[Page 226]] the address at
the time of the transaction. For example, if the bank retains the
address information as part of its funds transfer records, it would
retain the address at the time the funds transfer was processed. If the
bank retains this information as part of its customer information file,
it would retain the current address. For originators and beneficiaries
other than established customers, however, the bank would retain the
person's address at the time of the transaction, which is the only
address that has been documented.
Several commenters, including commercial banks and credit unions,
also mentioned that retrieving information by a secondary account
holder's name would be more difficult than retrieving by a primary
account holder's name in the case of a joint account. Customer
information files typically are indexed on the primary account holder's
name only. Commenters indicated that a search by a secondary account
holder's name probably would require a manual search of the records. In
order to comply with subpoenas and search warrants submitted by law
enforcement agencies that request information by name, banks should
have the capability to retrieve payment order records by secondary
account holder name as well as by the name of the primary account
holder. Banks that find it difficult to search by secondary account
holder name for joint accounts may wish to consider the volume of law
enforcement requests when making decisions about whether to make
automation changes to facilitate searches by secondary account holder
name or to rely on manual searches to satisfy these requests.
Many commenters noted that retrieving transactions by the name of
an originator or beneficiary other than an account holder would be
impractical, since a manual search of the bank's records would be
required. One bank estimated that a search by a non-account holder's
name would require three full days of manual searching for each day of
funds transfer activity, and that the results of manual searches might
not be very reliable. Banks may wish to consider implementing a
separate recordkeeping system--either manual files or an automated
database--containing only information related to payment orders for
originators or beneficiaries that are not established customers, in
order to search more easily for these transactions. If a bank has more
than one customer with the same name, the bank may request more
specific information from the law enforcement agency to determine the
exact individual desired. In situations where a law enforcement agency
provides a bank with a customer's account number only, then the bank
may search based on the account number only.
Section 103.33(e)(6) and Section 103.33(f)(6)
Exceptions--The proposed recordkeeping requirements exempted
certain transfers based on the parties to the transfer. Several
commenters requested that more transfers be exempted. Two commenters
recommended that transfers involving public utilities, corporations
listed on major stock exchanges, and businesses exempted from Currency
Transaction Reporting be exempted under the rule. The Treasury and the
Board believe that excluding such a broad category of entities would
diminish the usefulness of the regulation; therefore, these entities
are not exempted in the final rule.
To eliminate the redundancy in the proposed list of exemptions and
to provide consistent treatment for wholly-owned domestic subsidiaries
of domestic banks and domestic brokers or dealers in securities, the
final rule has been revised to exempt transfers where the originator
and beneficiary are any of the following: (1) A domestic bank; (2) a
wholly-owned domestic subsidiary of a domestic bank; (3) a domestic
broker or dealer in securities; (4) a wholly-owned domestic subsidiary
of a domestic broker or dealer in securities; (5) the United States;
(6) a state or local government; (7) a federal, state or local
government agency or instrumentality. Funds transfers where both the
originator and beneficiary are the same person and the originator's
bank and the beneficiary's bank are the same domestic bank, as well as
transmittals of funds where both the transmittor and recipient are the
same person and the transmittor's financial institution and the
recipient's financial institution are the same domestic broker or
dealer in securities, also are exempted. These revisions expand the
proposed exemptions to include transfers between a wholly-owned
subsidiary of any domestic bank or broker or dealer in securities and
any other exempted entity.
C. Other Issues
Compliance Costs--Many commenters provided estimates on the cost to
implement the requirements of the proposed rule as well as an estimate
on the annual ongoing costs to collect the required information. The
cost estimates varied widely. A few smaller credit unions indicated
that they already were complying with the proposed requirements and
therefore expected no additional implementation or maintenance costs as
a result of the proposal. Larger commercial banks and credit unions,
however, estimated their implementation costs at $15,000 to $879,000,
and their maintenance costs as high as $350,000 per year. Two nonbank
providers of money transmitting services expected that compliance would
be very costly. One money transmittor estimated $946,000 of
implementation costs and $2 million of annual maintenance costs.
Another provider of money transmitting services estimated $3.3 million
of implementation costs, which includes increased transaction time,
additional hardware/software, and training costs. The same provider of
money transmitting services, however, estimated that with a $3,000
exemption threshold, its implementation cost would fall to $710,000.
Implementing a $3,000 threshold and limiting the verification
requirements and supplemental recordkeeping requirements to transfers
involving originators or beneficiaries that are not established
customers will significantly reduce the burden and cost for banks to
comply with the rule. The burden for nonbank financial institutions,
particularly providers of money transmitting services, decreases
dramatically under the final rule, as the majority of transmittals of
funds they accept are for amounts of less than $3,000.
Retention Period--Records required under the Bank Secrecy Act,
including funds transfer records, must be retained for five years. A
securities industry association, however, commented that Securities and
Exchange Commission (SEC) retention regulations, which apply to broker/
dealers, may differ from the five-year period depending upon the
specific document containing the required information. The association
recommended that the rule be amended to allow broker/dealers to comply
with existing SEC rules, which would eliminate the need to modify
existing retention practices and the administrative difficulties of
maintaining inconsistent retention schedules. The Internal Revenue
Service recommended that records be maintained for ten years, to ensure
information related to audits would be available for its use.
SEC regulations require registered broker/dealers subject to
Treasury's Bank Secrecy Act requirements to preserve their records
according to 31 CFR Part 103, if such retention periods
[[Page 227]] are longer than those required by the SEC (17 CFR 240.17a-
8). Therefore, the retention period remains unchanged for broker/
dealers. Under this final rule, the five-year retention period applies
only to records of funds transfers made on or after the rule's
effective date.
The Treasury and the Board believe that a uniform retention period
should apply to all records that must be retained under the Bank
Secrecy Act regulations, and therefore, a longer retention period
should not be required for funds transfer records than for records of
other financial transactions. The Treasury and the Board are concerned
that expansion of the Bank Secrecy Act record retention requirement
from five to ten years may increase materially the cost of compliance
for financial institutions, but will monitor the adequacy of the record
retention requirement.
Effective Date--Many commenters expressed concern regarding the
effective date, particularly given the need for banks to make
operational and procedural changes to comply with the rule's
retrievability and verification requirements. These commenters
indicated that the proposed December 31, 1993 effective date was
unrealistic given that the final rule had yet to be published with only
weeks remaining until the deadline. They indicated that changes to
existing manual and automated procedures to comply with the rule would
require a significant preparation time.
Most commenters requested that the effective date be six to 12
months after publication of the final rule. Several commenters
suggested that the implementation date be delayed to coincide with the
effective date of the Treasury's companion Travel Rule. These
commenters indicated that a single implementation date for both rules
would prevent having to make changes twice to internal procedures and
computer systems.
A few commenters recommended that the effective date be delayed
until the new Fedwire format is adopted. As noted above, recognizing
that originator's banks may strive to satisfy the recordkeeping
requirements of this rule primarily through retention of records of the
payment orders they execute, and that the current Fedwire format may
not have sufficient space to include all means provided by the
originator of identifying the beneficiary, the final rule provides an
exception to the requirement that the bank retain as many means of
identifying the beneficiary as provided by the originator for Fedwire
transfers, until the bank's conversion to the expanded Fedwire format
is complete. With this limited exception, the expanded format is not
necessary to comply with this rule, and delaying implementation of the
recordkeeping rule until after a new format is implemented would delay
realizing the benefits of this rule.
In response to the concerns raised by commenters, on December 22,
1993, the Treasury announced a delay in the adoption of the final rule
to permit the Treasury to consider the rule as part of its ongoing
comprehensive review of the Treasury's anti-money laundering
enforcement policies, programs, and regulations. The Treasury and the
Board recognize that adequate lead time is necessary to allow banks
time to change procedures and/or install systems to comply with the
final rule. Therefore, the rule will become effective on January 1,
1996, at which time the Treasury's companion Travel Rule also will
become effective. [See the Treasury's notice elsewhere in today's
Federal Register adopting the final Travel Rule.]
D. Paperwork Reduction Act
The collection of information required by the final rule has been
submitted by the Treasury to the Office of Management and Budget in
accordance with the requirements of the Paperwork Reduction Act (44
U.S.C. 3504(h)) under control number 1505-0063.
The collection of information in this regulation is authorized by
12 U.S.C. 1829b and 1951-1959 and 31 U.S.C. 5311-5328. The likely
recordkeepers are financial institutions that perform transmittals of
funds.
Estimated number of respondents and/or recordkeepers: 60,000.
Estimated total annual recordkeeping burden: 1 million hours.
Estimated average annual burden per respondent and/or recordkeeper:
16.3 hours.
Estimated annual frequency of responses: Upon request.
The estimated average annual burden hours have decreased
significantly from those included in the August 1993 proposal. The
decrease is due to the significant reduction in the number of
transmittals of funds subject to the recordkeeping requirements as a
result of the establishment of the $3,000 threshold, and due to the
reduction of circumstances in which additional recordkeeping and
verification requirements for noncustomers would apply.
E. Final Regulatory Flexibility Analysis
Two of the three requirements of a final regulatory flexibility
analysis (5 U.S.C. 604), (1) A succinct statement of the need for and
the objectives of the rule and (2) a summary of the issues raised by
the public comments, the agency's assessment of the issues, and a
statement of the changes made in the final rule in response to the
comments, are discussed above. The third requirement of a final
regulatory flexibility analysis is a description of significant
alternatives to the rule that would minimize the rule's economic impact
on small entities and reasons why the alternatives were rejected.
The requirements in this rule will apply to all financial
institutions subject to the Bank Secrecy Act, regardless of size. An
exemption for small entities would not be appropriate because it would
permit money laundering operations to evade the recordkeeping process
by using small financial institutions. This would diminish
significantly the usefulness of these records for criminal, tax, or
regulatory investigations.
The small entities that will be affected by this rule include small
banks and nonbank money transmitting businesses. In order to minimize
the economic impact on small entities, the rule allows financial
institutions that send or receive transmittal orders for established
customers to use existing records to satisfy some of the recordkeeping
requirements. The rule also exempts transmittals of funds below $3,000,
which should particularly benefit nonbank providers of money
transmitting services that handle smaller-value transfers. The Treasury
and the Board do not believe that the final rule would impose reporting
or recordkeeping burdens on small entities that require specialized
professional skills not available to them.
F. Conclusion
The Treasury and the Board have adopted a revised version of its
proposed rule.
G. Executive Order 12866
The Treasury finds that this final rule is not a ``significant''
rule for purposes of Executive Order 12866. The rule is not anticipated
to have an annual effect on the economy of $100 million or more. It
will not affect adversely in a material way the economy, a sector of
the economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities. It creates no inconsistencies with, nor does it interfere
with actions taken or planned by other agencies. Finally, it raises no
novel legal or policy issues. A cost and benefit analysis therefore is
not required. [[Page 228]]
List of Subjects in 31 CFR Part 103
Administrative practice and procedure, Banks, banking, Brokers,
Currency, Foreign banking, Foreign currencies, Gambling,
Investigations, Penalties, Reporting and recordkeeping requirements,
Securities.
Amendment
For the reasons set forth in the preamble, 31 CFR Part 103 is
amended as set forth below:
PART 103--FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND
FOREIGN TRANSACTIONS
1. The authority citation for Part 103 is revised to read as
follows:
Authority: 12 U.S.C. 1829b and 1951-1959; 31 U.S.C. 5311-5329.
2. Section 103.11 is amended as follows:
a. By redesignating paragraphs (a), (b), (c) through (h), (i)
through (k), (l), (m), (n), (o), (p) through (r), and (s) through (u)
as paragraphs (b), (c), (f) through (k), (n) through (p), (t), (u),
(z), (ee), (gg) through (ii), and (nn) through (pp), respectively;
b. By removing the words ``For purposes of Sec. 103.29 of this
part, deposit'' and adding in their place, ``Deposit'' in newly
designated paragraph (j); and
c. By adding new paragraphs (a), (d), (e), (l), (m), (q), (r), (s),
(v), (w), (x), (y), (aa), (bb), (cc), (dd), (ff), (jj), (kk), (ll), and
(mm).
The additions read as follows:
Sec. 103.11 Meaning of terms.
* * * * *
(a) Accept. A receiving financial institution, other than the
recipient's financial institution, accepts a transmittal order by
executing the transmittal order. A recipient's financial institution
accepts a transmittal order by paying the recipient, by notifying the
recipient of the receipt of the order or by otherwise becoming
obligated to carry out the order.
* * * * *
(d) Beneficiary. The person to be paid by the beneficiary's bank.
(e) Beneficiary's bank. The bank identified in a payment order in
which an account of the beneficiary is to be credited pursuant to the
order or which otherwise is to make payment to the beneficiary if the
order does not provide for payment to an account.
* * * * *
(l) Established customer. A person with an account with the
financial institution, including a loan account or deposit or other
asset account, or a person with respect to which the financial
institution has obtained and maintains on file the person's name and
address, as well as taxpayer identification number (e.g., social
security or employer identification number) or, if none, alien
identification number or passport number and country of issuance, and
to which the financial institution provides financial services relying
on that information.
(m) Execution date. The day on which the receiving financial
institution may properly issue a transmittal order in execution of the
sender's order. The execution date may be determined by instruction of
the sender but cannot be earlier than the day the order is received,
and, unless otherwise determined, is the day the order is received. If
the sender's instruction states a payment date, the execution date is
the payment date or an earlier date on which execution is reasonably
necessary to allow payment to the recipient on the payment date.
* * * * *
(q) Funds transfer. The series of transactions, beginning with the
originator's payment order, made for the purpose of making payment to
the beneficiary of the order. The term includes any payment order
issued by the originator's bank or an intermediary bank intended to
carry out the originator's payment order. A funds transfer is completed
by acceptance by the beneficiary's bank of a payment order for the
benefit of the beneficiary of the originator's payment order. Funds
transfers governed by the Electronic Fund Transfer Act of 1978 (Title
XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693, et seq.), as well as
any other funds transfers that are made through an automated
clearinghouse, an automated teller machine, or a point-of-sale system,
are excluded from this definition.
(r) Intermediary bank. A receiving bank other than the originator's
bank or the beneficiary's bank.
(s) Intermediary financial institution. A receiving financial
institution, other than the transmittor's financial institution or the
recipient's financial institution. The term intermediary financial
institution includes an intermediary bank.
* * * * *
(v) Originator. The sender of the first payment order in a funds
transfer.
(w) Originator's bank. The receiving bank to which the payment
order of the originator is issued if the originator is not a bank, or
the originator if the originator is a bank.
(x) Payment date. The day on which the amount of the transmittal
order is payable to the recipient by the recipient's financial
institution. The payment date may be determined by instruction of the
sender, but cannot be earlier than the day the order is received by the
recipient's financial institution and, unless otherwise prescribed by
instruction, is the date the order is received by the recipient's
financial institution.
(y) Payment order. An instruction of a sender to a receiving bank,
transmitted orally, electronically, or in writing, to pay, or to cause
another bank to pay, a fixed or determinable amount of money to a
beneficiary if:
(1) The instruction does not state a condition to payment to the
beneficiary other than time of payment;
(2) The receiving bank is to be reimbursed by debiting an account
of, or otherwise receiving payment from, the sender; and
(3) The instruction is transmitted by the sender directly to the
receiving bank or to an agent, funds transfer system, or communication
system for transmittal to the receiving bank.
* * * * *
(aa) Receiving bank. The bank to which the sender's instruction is
addressed.
(bb) Receiving financial institution. The financial institution to
which the sender's instruction is addressed. The term receiving
financial institution includes a receiving bank.
(cc) Recipient. The person to be paid by the recipient's financial
institution. The term recipient includes a beneficiary, except where
the recipient's financial institution is a financial institution other
than a bank.
(dd) Recipient's financial institution. The financial institution
identified in a transmittal order in which an account of the recipient
is to be credited pursuant to the transmittal order or which otherwise
is to make payment to the recipient if the order does not provide for
payment to an account. The term recipient's financial institution
includes a beneficiary's bank, except where the beneficiary is a
recipient's financial institution.
* * * * *
(ff) Sender. The person giving the instruction to the receiving
financial institution.
* * * * *
(jj) Transmittal of funds. A series of transactions beginning with
the transmittor's transmittal order, made for the purpose of making
payment to the recipient of the order. The term includes any
transmittal order issued by the [[Page 229]] transmittor's financial
institution or an intermediary financial institution intended to carry
out the transmittor's transmittal order. The term transmittal of funds
includes a funds transfer. A transmittal of funds is completed by
acceptance by the recipient's financial institution of a transmittal
order for the benefit of the recipient of the transmittor's transmittal
order. Funds transfers governed by the Electronic Fund Transfer Act of
1978 (Title XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693, et
seq.), as well as any other funds transfers that are made through an
automated clearinghouse, an automated teller machine, or a point-of-
sale system, are excluded from this definition.
(kk) Transmittal order. The term transmittal order includes a
payment order and is an instruction of a sender to a receiving
financial institution, transmitted orally, electronically, or in
writing, to pay, or to cause another financial institution to pay, a
fixed or determinable amount of money to a recipient if:
(1) The instruction does not state a condition to payment to the
recipient other than time of payment;
(2) The receiving financial institution is to be reimbursed by
debiting an account of, or otherwise receiving payment from, the
sender; and
(3) The instruction is transmitted by the sender directly to the
receiving financial institution or to an agent or communication system
for transmittal to the receiving financial institution.
(ll) Transmittor. The sender of the first transmittal order in a
transmittal of funds. The term transmittor includes an originator,
except where the transmittor's financial institution is a financial
institution other than a bank.
(mm) Transmittor's financial institution. The receiving financial
institution to which the transmittal order of the transmittor is issued
if the transmittor is not a financial institution, or the transmittor
if the transmittor is a financial institution. The term transmittor's
financial institution includes an originator's bank, except where the
originator is a transmittor's financial institution other than a bank.
* * * * *
3. Paragraph (b)(2) of Sec. 103.25 is revised to read as follows:
Sec. 103.25 Reports of transactions with foreign financial agencies.
* * * * *
(b) * * *
(2) Transmittal orders received by a respondent financial
institution from a foreign financial agency or sent by respondent
financial institution to a foreign financial agency, including all
information maintained by that institution pursuant to Sec. 103.33.
* * * * *
4. Section 103.33 is amended by adding new paragraphs (e) and (f),
to read as follows:
Sec. 103.33 Records to be made and retained by financial institutions.
* * * * *
(e) Banks. With respect to a funds transfer in the amount of $3,000
or more by a bank:
(1) Recordkeeping requirements. (i) For each payment order that it
accepts as an originator's bank, the bank shall obtain and retain
either the original or a microfilm, other copy, or electronic record of
the following information relating to the payment order:
(A) The name and address of the originator;
(B) The amount of the payment order;
(C) The execution date of the payment order;
(D) Any payment instructions received from the originator with the
payment order;
(E) The identity of the beneficiary's bank; and
(F) As many of the following items as are received with the payment
order:1
\1\ For funds transfers effected through the Federal Reserve's
Fedwire funds transfer system, only one of the items is required to
be retained, if received with the payment order, until such time as
the bank that sends the order to the Federal Reserve Bank completes
its conversion to the expanded Fedwire message format.
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(1) The name and address of the beneficiary;
(2) The account number of the beneficiary; and
(3) Any other specific identifier of the beneficiary.
(ii) For each payment order that it accepts as an intermediary
bank, the bank shall retain either the original or a microfilm, other
copy, or electronic record of the payment order.
(iii) For each payment order that it accepts as a beneficiary's
bank, the bank shall retain either the original or a microfilm, other
copy, or electronic record of the payment order.
(2) Originators other than established customers. In the case of a
payment order from an originator that is not an established customer,
in addition to obtaining and retaining the information required in
paragraph (e)(1)(i) of this section:
(i) If the payment order is made in person, prior to acceptance the
originator's bank shall verify the identity of the person placing the
payment order. If it accepts the payment order, the originator's bank
shall obtain and retain a record of the name and address, the type of
identification reviewed, the number of the identification document
(e.g., driver's license), as well as a record of the person's taxpayer
identification number (e.g., social security or employer identification
number) or, if none, alien identification number or passport number and
country of issuance, or a notation in the record of the lack thereof.
If the originator's bank has knowledge that the person placing the
payment order is not the originator, the originator's bank shall obtain
and retain a record of the originator's taxpayer identification number
(e.g., social security or employer identification number) or, if none,
alien identification number or passport number and country of issuance,
if known by the person placing the order, or a notation in the record
of the lack thereof.
(ii) If the payment order accepted by the originator's bank is not
made in person, the originator's bank shall obtain and retain a record
of name and address of the person placing the payment order, as well as
the person's taxpayer identification number (e.g., social security or
employer identification number) or, if none, alien identification
number or passport number and country of issuance, or a notation in the
record of the lack thereof, and a copy or record of the method of
payment (e.g., check or credit card transaction) for the funds
transfer. If the originator's bank has knowledge that the person
placing the payment order is not the originator, the originator's bank
shall obtain and retain a record of the originator's taxpayer
identification number (e.g., social security or employer identification
number) or, if none, alien identification number or passport number and
country of issuance, if known by the person placing the order, or a
notation in the record of the lack thereof.
(3) Beneficiaries other than established customers. For each
payment order that it accepts as a beneficiary's bank for a beneficiary
that is not an established customer, in addition to obtaining and
retaining the information required in paragraph (e)(1)(iii) of this
section:
(i) if the proceeds are delivered in person to the beneficiary or
its representative or agent, the beneficiary's bank shall verify the
identity of the person receiving the proceeds and shall obtain and
retain a record of the name and address, the type of identification
reviewed, and the number of the identification document (e.g., driver's
license), as well as a record of the person's taxpayer identification
number (e.g., social security or employer [[Page 230]] identification
number) or, if none, alien identification number or passport number and
country of issuance, or a notation in the record of the lack thereof.
If the beneficiary's bank has knowledge that the person receiving the
proceeds is not the beneficiary, the beneficiary's bank shall obtain
and retain a record of the beneficiary's name and address, as well as
the beneficiary's taxpayer identification number (e.g., social security
or employer identification number) or, if none, alien identification
number or passport number and country of issuance, if known by the
person receiving the proceeds, or a notation in the record of the lack
thereof.
(ii) if the proceeds are delivered other than in person, the
beneficiary's bank shall retain a copy of the check or other instrument
used to effect payment, or the information contained thereon, as well
as the name and address of the person to which it was sent.
(4) Retrievability. The information that an originator's bank must
retain under paragraphs (e)(1)(i) and (e)(2) of this section shall be
retrievable by the originator's bank by reference to the name of the
originator. If the originator is an established customer of the
originator's bank and has an account used for funds transfers, then the
information also shall be retrievable by account number. The
information that a beneficiary's bank must retain under paragraphs
(e)(1)(iii) and (e)(3) of this section shall be retrievable by the
beneficiary's bank by reference to the name of the beneficiary. If the
beneficiary is an established customer of the beneficiary's bank and
has an account used for funds transfers, then the information also
shall be retrievable by account number. This information need not be
retained in any particular manner, so long as the bank is able to
retrieve the information required by this paragraph, either by
accessing funds transfer records directly or through reference to some
other record maintained by the bank.
(5) Verification. Where verification is required under paragraphs
(e)(2) and (e)(3) of this section, a bank shall verify a person's
identity by examination of a document (other than a bank signature
card), preferably one that contains the person's name, address, and
photograph, that is normally acceptable by financial institutions as a
means of identification when cashing checks for persons other than
established customers. Verification of the identity of an individual
who indicates that he or she is an alien or is not a resident of the
United States may be made by passport, alien identification card, or
other official document evidencing nationality or residence (e.g., a
foreign driver's license with indication of home address).
(6) Exceptions. The following funds transfers are not subject to
the requirements of this section:
(i) Funds transfers where the originator and beneficiary are any of
the following:
(A) A domestic bank;
(B) A wholly-owned domestic subsidiary of a domestic bank;
(C) A domestic broker or dealer in securities;
(D) A wholly-owned domestic subsidiary of a domestic broker or
dealer in securities;
(E) The United States;
(F) A state or local government; or
(G) A federal, state or local government agency or instrumentality;
and
(ii) Funds transfers where both the originator and the beneficiary
are the same person and the originator's bank and the beneficiary's
bank are the same domestic bank.
(f) Nonbank financial institutions. With respect to a transmittal
of funds in the amount of $3,000 or more by a financial institution
other than a bank:
(1) Recordkeeping requirements. (i) For each transmittal order that
it accepts as a transmittor's financial institution, the financial
institution shall obtain and retain either the original or a microfilm,
other copy, or electronic record of the following information relating
to the transmittal order:
(A) The name and address of the transmittor;
(B) The amount of the transmittal order;
(C) The execution date of the transmittal order;
(D) Any payment instructions received from the transmittor with the
transmittal order;
(E) The identity of the recipient's financial institution;
(F) As many of the following items as are received with the
transmittal order:2
\2\ For transmittals of funds effected through the Federal
Reserve's Fedwire funds transfer system by a domestic broker or
dealers in securities, only one of the items is required to be
retained, if received with the transmittal order, until such time as
the bank that sends the order to the Federal Reserve Bank completes
its conversion to the expanded Fedwire message format.
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(1) The name and address of the recipient;
(2) The account number of the recipient; and
(3) Any other specific identifier of the recipient; and
(G) Any form relating to the transmittal of funds that is completed
or signed by the person placing the transmittal order.
(ii) For each transmittal order that it accepts as an intermediary
financial institution, the financial institution shall retain either
the original or a microfilm, other copy, or electronic record of the
transmittal order.
(iii) For each transmittal order that it accepts as a recipient's
financial institution, the financial institution shall retain either
the original or a microfilm, other copy, or electronic record of the
transmittal order, as well as any form completed or signed by the
person receiving the proceeds of the transmittal of funds.
(2) Transmittors other than established customers. In the case of a
transmittal order from a transmittor that is not an established
customer, in addition to obtaining and retaining the information
required in paragraph (f)(1)(i) of this section:
(i) If the transmittal order is made in person, prior to acceptance
the transmittor's financial institution shall verify the identity of
the person placing the transmittal order. If it accepts the transmittal
order, the transmittor's financial institution shall obtain and retain
a record of the name and address, the type of identification reviewed,
and the number of the identification document (e.g., driver's license),
as well as a record of the person's taxpayer identification number
(e.g., social security or employer identification number) or, if none,
alien identification number or passport number and country of issuance,
or a notation in the record the lack thereof. If the transmittor's
financial institution has knowledge that the person placing the
transmittal order is not the transmittor, the transmittor's financial
institution shall obtain and retain a record of the transmittor's
taxpayer identification number (e.g., social security or employer
identification number) or, if none, alien identification number or
passport number and country of issuance, if known by the person placing
the order, or a notation in the record the lack thereof.
(ii) If the transmittal order accepted by the transmittor's
financial institution is not made in person, the transmittor's
financial institution shall obtain and retain a record of the name and
address of the person placing the transmittal order, as well as the
person's taxpayer identification number (e.g., social security or
employer identification number) or, if none, alien identification
number or passport number and country of issuance, or a notation in the
record of the lack thereof, and a copy or record of the method of
payment (e.g., check or [[Page 231]] credit card transaction) for the
transmittal of funds. If the transmittor's financial institution has
knowledge that the person placing the transmittal order is not the
transmittor, the transmittor's financial institution shall obtain and
retain a record of the transmittor's taxpayer identification number
(e.g., social security or employer identification number) or, if none,
alien identification number or passport number and country of issuance,
if known by the person placing the order, or a notation in the record
the lack thereof.
(3) Recipients other than established customers. For each
transmittal order that it accepts as a recipient's financial
institution for a recipient that is not an established customer, in
addition to obtaining and retaining the information required in
paragraph (f)(1)(iii) of this section:
(i) If the proceeds are delivered in person to the recipient or its
representative or agent, the recipient's financial institution shall
verify the identity of the person receiving the proceeds and shall
obtain and retain a record of the name and address, the type of
identification reviewed, and the number of the identification document
(e.g., driver's license), as well as a record of the person's taxpayer
identification number (e.g., social security or employer identification
number) or, if none, alien identification number or passport number and
country of issuance, or a notation in the record of the lack thereof.
If the recipient's financial institution has knowledge that the person
receiving the proceeds is not the recipient, the recipient's financial
institution shall obtain and retain a record of the recipient's name
and address, as well as the recipient's taxpayer identification number
(e.g., social security or employer identification number) or, if none,
alien identification number or passport number and country of issuance,
if known by the person receiving the proceeds, or a notation in the
record of the lack thereof.
(ii) If the proceeds are delivered other than in person, the
recipient's financial institution shall retain a copy of the check or
other instrument used to effect payment, or the information contained
thereon, as well as the name and address of the person to which it was
sent.
(4) Retrievability. The information that a transmittor's financial
institution must retain under paragraphs (f)(1)(i) and (f)(2) of this
section shall be retrievable by the transmittor's financial institution
by reference to the name of the transmittor. If the transmittor is an
established customer of the transmittor's financial institution and has
an account used for transmittals of funds, then the information also
shall be retrievable by account number. The information that a
recipient's financial institution must retain under paragraphs
(f)(1)(iii) and (f)(3) of this section shall be retrievable by the
recipient's financial institution by reference to the name of the
recipient. If the recipient is an established customer of the
recipient's financial institution and has an account used for
transmittals of funds, then the information also shall be retrievable
by account number. This information need not be retained in any
particular manner, so long as the financial institution is able to
retrieve the information required by this paragraph, either by
accessing transmittal of funds records directly or through reference to
some other record maintained by the financial institution.
(5) Verification. Where verification is required under paragraphs
(f)(2) and (f)(3) of this section, a financial institution shall verify
a person's identity by examination of a document (other than a customer
signature card), preferably one that contains the person's name,
address, and photograph, that is normally acceptable by financial
institutions as a means of identification when cashing checks for
persons other than established customers. Verification of the identity
of an individual who indicates that he or she is an alien or is not a
resident of the United States may be made by passport, alien
identification card, or other official document evidencing nationality
or residence (e.g., a foreign driver's license with indication of home
address).
(6) Exceptions. The following transmittals of funds are not subject
to the requirements of this section:
(i) Transmittals of funds where the transmittor and the recipient
are any of the following:
(A) A domestic bank;
(B) A wholly-owned domestic subsidiary of a domestic bank;
(C) A domestic broker or dealer in securities;
(D) A wholly-owned domestic subsidiary of a domestic broker or
dealer in securities;
(E) The United States;
(F) A state or local government; or
(G) A federal, state or local government agency or instrumentality;
and
(ii) Transmittals of funds where both the transmittor and recipient
are the same person and the transmittor's financial institution and the
recipient's financial institution are the same domestic broker or
dealer in securities.
In concurrence:
By the Board of Governors of the Federal Reserve System,
December 21, 1994.
William W. Wiles,
Secretary of the Board.
By the Department of the Treasury, December 19, 1994.
Stanley E. Morris,
Director, Financial Crimes Enforcement Network.
[FR Doc. 94-31977 Filed 12-30-94; 8:45 am]
BILLING CODE 6210-01-P; 4810-25-P